Subject: File No. S7-10-04
From: Larry Guli

TO:Jonathan Katz
Secretary
United States Securities and Exchange Commission

Re: File No. S7-10-04 Proposed Rule on Regulation NMS

I am writing today to provide comment on the SECs proposed overhaul
of the American capital markets, otherwise known as Regulation NMS.

While there can be no doubt that our domestic markets are long
overdue for modernization, I am deeply concerned that, in the
effort
to bring efficiency and transparency to the systems which are now
in
place, the very real possibility exists that we may well compromise
and potentially even destroy the very mechanism which has, for so
long served our country so admirably. The United States free
markets
have, for over two hundred years, been the worlds gold standard in
the creation of capital. As such, they have provided the bedrock
for
tens of thousands of businesses, small and large, to build
themselves into the engines of productivity that power free
enterprise. I believe it is critical that the strength and power of
our markets be maintained. It is for this reason that I now ask
that
the SEC take the greatest of care as they complete their overhaul
of
our National Market System.

According to the November revision of the proposal first put forth,
the SEC has proposed two potential versions of Reg NMS. In the
first
iteration, the protection of best price is paramount. Under this
version of the proposal, the national best bid and offer cannot be
traded through by an inferior price provided that the markets
involved are deemed fast markets. Under the second version of the
proposal, what amounts to a virtual CLOB Central Limit Order Book
is
proposed where all orders at all prices must be exposed at all
times.

While I fully support the first version of the proposal, I believe
that a virtual CLOB would inevitably lead to a radical contraction
of liquidity as investors avoid exposure of their positions. This
would, in turn, lead to the elimination of competition between
markets, internalization of orders and ultimately degrade the
system
resulting in blatant payment for order flow. In effect, a
nationalized market system would be created, leading domestic and
international investors to take their capital requirements to other
venues far away from our shores. Our domestic markets would quickly
be hobbled and we would lose our position in the financial world.

In
addition, the staggering cost of implementing such a system, both
in
terms of time and money has not been realistically factored in. In
short, this version of NMS is, in my view, potentially disastrous.
In addition, the CLOB proposal would instantly render unworkable
the
NYSEs Hybrid Market proposal. The Hybrid Market was crafted over a
period of many months with the cooperation of the SEC in an effort
to fully integrate the strength of the current open outcry
specialist auction system with the speed and efficiency of
automated
trading. The specialist system is a critical link in the capital
chain providing liquidity and adding an indispensible element to
true best price discovery. While it may be true that some
individuals within the system have abused their responsibility, the
cost of disposing of a system which has for many decades, reliably
provided the markets with a critical smoothing action and
repeatedly
averted tremendous losses is simply too high to reconcile. If one
takes the aggregate cost of those abuses to investors and
distibutes
it over one trading year, the cost per share, per investor is so
small as to be virtually immeasurable.
Institutions have often called for measures that would effectively
limit competition between markets, couching their desire to fill
orders internally in rhetoric but we must remember that their
interest is often their own - not their clients. Individuals must
have the right to true best price and a free market. The United
States capital market has been the envy of the world since this
country came into being.

By all means, we must bring our market up to date but let us not
destroy it by fixing what is not broken.